Bonds will help utility cut debt

Officials say council approval gives Burbank Water and Power more financial flexibility.

October 22, 2010|By Gretchen Meier, gretchen.meier@latimes.com

(File photo )

Burbank Water and Power will issue water bonds for the first time in more than a dozen years after the City Council this week granted the utility's request to use the earnings to fund projects and reduce debt.

The revenue bonds are not to exceed $41 million, which will be used to refinance the last bonds issued by the city in 1998.

The current debt for the 12-year-old bonds remains at $3 million and, according to the original arrangement, the city must maintain a certain amount in debt reserve while the bonds are active.

Burbank Water and Power Chief Financial Officer Bob Lium suggested the city use the money from the new bonds to refinance the ones issued in 1998, giving the utility greater financial freedom.

"The debt reserve costs us $90,000 per year," Lium told the City Council on Tuesday. "We can get rid of the indenture that does that and just rewrite the rules."

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Unlike their predecessors, the new bonds will not require a certain debt reserve, allowing greater flexibility as the city structures and pays off the debt. And the new revenue will enable Burbank Water and Power to pay back the $9 million the utility borrowed from the General Fund last fiscal year.

The City Council also heard amendments for the city's Recycled Water Master Plan and a renovation proposal for an aging city reservoir built in 1928.

The costs of additional projects included in the recycled-water plan — a new recycled water main in the new Victory Place bridge as part of the Empire Interchange project, Bob Hope Airport's planned regional transit center and the Channel Bike Path and extension to the L.A. Equestrian Center — will be partially funded by the new bonds, as will a portion of the renovation of the 82-year-old reservoir.

Reservoir No.1 holds 6.9 million gallons, and at the end of the project it will be up to current design standards and will eventually lend itself to parkland as part of a separate project, utility officials said.

Moving forward with the project and going out to bid in either late winter or early spring will result in a 0.8% rate increase for Burbank Water and Power consumers, officials said. But postponing the project for three years will double the rate increase to 1.6%, said Michael Thompson, principal engineer for the utility.

The bonds were given positive ratings by Fitch Ratings, Moody's Investor Service and Standard & Poor's.

Burbank is designated as "low risk" for investors due to stable city finances and the City Council's demonstrated willingness to raise rates, according to the reports. The positive ratings mean lower interest rates for the city.